Businesses Ponder Impact of Health-Care Reform

The health-care reform bill’s individual mandate is getting all the attention this week as the Supreme Court heard arguments over whether the government can require all Americans to purchase health insurance.

For business owners the argument over an individual mandate is only half the debate.

The other half is squarely focused on a slew of mandates that directly impact employers, including (not least) a requirement that starting in 2014 companies with 50 or more workers have to provide health insurance to their employees or face a penalty of $2,000 for each employee not covered.

The 50 employee number is significant because the U.S. Small Business Administration estimates that 96% of all U.S. businesses have fewer than 50 workers. What’s more, the SBA has said that 96% of U.S. companies with 50 or more employees already provide health insurance to their employees.

In any case, the mandates have left business owners scratching their heads and searching for answers. Are part-time workers included in the mandate? What about seasonal workers? Which is cheaper, paying for health care or paying the penalty? What constitutes a minimum level of coverage as defined by the new regulations? And so on.

David Keiter, 54, the owner of Yellow Van Cleaning, a carpet cleaning service with 48 employees in Kearney, Neb., said nearly three-and-a-half years of historically low interest rates has created a welcoming environment for small businesses to expand.

Keiter said a consultant he hired recently to help him target additional customers in his central Nebraska service area quickly identified 2,000 potential clients. To serve those customers Keiter said he would have to hire an additional seven employees, pushing the company over the 50 employee threshold.

So far Keiter has held off on his expansion plans while the dust settles around the health reform legislation.

“I believe there’s an opportunity to put additional people to work,” Keiter said. But the health- care reform law as it currently stands “is putting a block in my ability to walk through this."

Business owners face two immediate questions concerning the employee mandate. First, it’s uncertain what will happen to the employer requirements if the Supreme Court strikes down the individual mandate as unconstitutional. That issue, known as severability in legal jargon, was argued Wednesday before the high court.

Legal experts believe if the individual mandate is stricken the rest of the law is likely to fall with it. “If the individual mandate is struck down, I think the court would have a difficult time severing the employer mandate from it based on cases they’ve ruled on in the past,” said Tom Christina, an attorney with Ogletree Deakins in Greenville, S.C.

The Supreme Court isn’t expected to issue a ruling until at least June.

Second, all of the leading Republican candidates for president have vowed to repeal the law if elected. What happens then? That question won’t be answered until November.

The flip side to all the new mandates and regulations is incentives offered to small businesses that fall under the 50-employee threshold to provide their employees with coverage.

Beginning in 2010, companies with fewer than 25 employees whose workers make on average less than $50,000 began receiving a tax credit of up to 35% on their insurance premiums. While the paperwork has been described as daunting, the tax breaks have been well-received.

Businesses that fall between 25 and 50 employees aren’t eligible for the tax break, but they also won’t be required to provide health insurance to their employees in 2014.

The reform legislation also provides grants aimed at helping employees improve their workers’ overall health and making it easier for companies to provide healthier food in their cafeterias.

Like most business owners, Keiter has been operating under the assumption that the legislation will stand. Consequently, he’s been searching for ways to live within the new requirements rather than finding ways to evade them. For instance, he dismissed the idea of splitting his company into two entities to stay below the 50-employee threshold for providing health care.

“We want to live within the rules,” he said.

A big problem is that uncertainty surrounding the law’s legal status combined with the vagaries of the specific requirements and the ensuing confusion have put business owners like Keiter back on their heels.

“It’s put us in a mindset in which we need to pull back until all the cards are on the table. It’s left in a preventative rather than an assertive mode,” Keiter said.

Successful small businesses are all about doing things “better, faster and more efficiently,” he added. The “complicated regulations” included in the new laws are “an obstacle” to that goal.

“There’s a point where it’s unnecessary for us to complicate small business’ ability to move forward,” Keiter said.

Benjamin Conley, an employee benefits lawyer in Chicago with Seyfarth Shaw, said some business owners hovering near the 50-employee threshold are reassessing the composition of their work forces.

Some employees might be moved to seasonal or part-time status so that the company can remain below the threshold, he said.

For other companies, dropping health care coverage altogether and paying the penalties may be cheaper than adding additional coverage, which often ranges from $5,000 to $15,000 a year per employee, depending on the scope of the coverage.

Conley noted that early studies conducted since the new law was approved show very few companies are considering actually dropping their coverage. Still, “everyone is running the numbers and looking at cost analysis,” he said.

Just as problematic is the wording of the mandate that requires employers to provide a standard minimum level of coverage. The wording says “affordable minimum essential” coverage.

Conley said business owners have struggled with the meaning of those three words “because it’s vague,” but that clarification from the government is expected before 2014.